Trustee Powers and Duties Flashcards
What are administrative versus dispositive powers of a trustee?
Administrative - relates to the management of the trust property while it is held on trust
Dispositive - distribution of trust property in accordance with its terms
When will a trustee be in breach of the trust?
When they act outside their powers or they fail to comply with their duties
What can a trustee do under the general power of investment?
They can make any type on investment that they could make if they were absolutely entitled to the assets
Must consider: standard investment criteria, duty of care, taking advice
What are the standard investment criteria when a trustee is investing?
Suitability - is investment of a suitable kind and is this particular investment suitable?
Diversification - depends on size of trust
What factors need considering when judging if an investment is suitable?
Size of the trust fund
Period of time it is meant to last
life / remainder interests / division
Balancing interests of all beneficiaries
Advice - can only ignore advice if a reasonably prudent trustee also would
Can trustees adopt moral considerations when considering investments
No - duties are to produce best financial return for the trust fund
BUT - they can select an ethical option if they are of economical equivalence
Scope is also wider for charitable trusts given their nature
Must trustees obtain advice?
Yes - before exercising powers of investment and when reviewing their investments
Exception - reasonably considered not needed to seek advice e.g. cost of advice outweighs investment / trustee has sufficient knowledge
What is the statutory duty of care and when is it raised or lowered?
trustees must exercise reasonable care and skill - depends on the circumstances
This will consider any special knowledge / experience that the trustee has / holds themselves out as having
Higher for professional trustees or lay trustees who hold themselves out to have skills making them good trustees
Applies to acts contained in Schedule 1
What is the common law duty of care?
Applies more widely - trustees must exercise the standard of diligence and care expected of an ordinarily prudent businessperson - considered same standard as statutory
Do trustees have a power to acquire land?
Yes - freehold or leasehold but only in UK
Can be for investment or occupation by a beneficiary
Can trustees delegate?
Yes - power of investment and to acquire land - but not their distributive obligations
if investment - must be in an agreement evidenced in writing - must include a policy statement giving guidance about how the agent should exercise their functions
If they comply with duties to review / select appropriate agent - won’t be vicariously liable for any negligence of the agent
What are the three broad circumstances in which trustees can distribute trust property?
When they have an obligation in the terms of the trust
When directed to by beneficiaries with S v V rights
Exercising a dispositive power e.g. power of appointment, maintenance, advancement
What is the difference between duties to adult and minor beneficiaries?
Must distribute income to adult beneficiaries as it arises
Trustees must accumulate income that arises before they turn 18
What are the dispositive powers?
Power of maintenance - pay income for maintenance, education or benefit of a minor beneficiary - does not apply if someone else has a prior interest in the income
Power of advancement - can pay capital for advancement of a beneficiary - can apply if someone has a prior interest in the trust - only with consent
What is the power of advancement?
A beneficiary who expects to receive capital from a trust at a future date may wish to receive their capital before it vests in possession
When is the power of advancement available?
Adults and minors
Vested and contingent interests
Can be modified or excluded by the trust instrument
Can be requested even when B does not have S v V rights
How much capital can be advanced?
Up to 100% of a beneficiary’s prospective entitlement
Do trustees have to advance capital?
No - discretionary.
Must consider whether action will result in the advancement or benefit of the beneficiary
How has case law understood advancement?
Education / career /. marriage
Immediate financial benefit for a beneficiary e.g. avoiding inheritance tax liability
Moral well-being e.g. charitable giving - but only to the extent that the beneficiary would have otherwise used their own resources to do the same
Power to advance: who should capital be paid to?
Adult - directly but check it is used for correct purpose
Minor - parent / guardian or directly to provider of goods / services
Power to advance: who must consent be sought from?
Must have the written consent of any beneficiaries with a prior interest - must be of full age and sound mind
Why does a trustee’s decision whether or not to bring a payment into account by proportion or strict monetary value matter?
Depends on the final value of the trust at the end and whether the B who advanced will receive any additional funds
What is the statutory power of maintenance?
Pay trust income to a minor beneficiary
When is statutory power of maintenance available?
Can be used for the benefit of minor beneficiaries with vested / contingent interests - as long as no other beneficiary has a prior interest in the income
How is ‘maintenance, education or benefit’ understood for the power of maintenance?
Broad discretion of trustees
- School fees / training
- Medical bills
- Food / clothing / rent
- Leisure and holidays
To whom should the income from the power of maintenance be paid?
Parent / guardian / provider of goods / services
When may the fiduciary duties of the power of maintenance be breached?
Trustees must exercise power in good faith in the interests of the beneficiary
Income can reduce costs of a guardian
Cannot unquestioningly pay income to parents without knowing what it is for
Does the power of maintenance apply to income that has been accumulated prior?
Yes - and current income
